Question
Suppose that the real money demand for the euro and US economies are given by the following equations: Yeuro (10- 20ieuro) YUS (5-20iUS) Meuro =
Suppose that the real money demand for the euro and US economies are given by the following equations:
Yeuro (10- 20ieuro)
YUS (5-20iUS)
Meuro = 500, 000,
MUS = 1650000
Yeuro= 62500 ,
YUS = 550,000
ieuro = 0.1 ,
iUS = 0.1
Assume that all these variables are experiencing zero growth rates. a) Calculate the current short-run and long-run Euro/US exchange rate and long run & short run interest rates
ii) Draw four graphs, that show the impact of this change. (money market graph and forex market graph
iii) Draw graphs, show the impact of this change on nominal money supply, real money supply, nominal interest rate, price level, and exchange rate. Explain what occurs to drive the shape of each figure
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